• Average inflation expected around -2%, with real policy rates at approximately 6%
• Moody’s cuts GDP growth forecast for 2025 due to ongoing trade tensions and disruptions

Sri Lanka’s average inflation for 2025 is expected to be around negative 2% while the estimated real policy rates are currently at around 6%, Moody’s said.

It said that in light of the weaker economic outlook, it expects the interest rate environment in the Asia Pacific region and globally to become more accommodative over the second half of 2025.

“The fact that real interest rates after inflation are currently positive affords Asia Pacific central banks room for cuts,” it added.

Therefore, Moody’s expects the estimated real policy rate to be around 6% from the current value of 7.75% and the average inflation forecast to be negative 2% for 2025.

Moreover, Moody’s has cut about 25 bps from its previously estimated close to 5% GDP growth for Sri Lanka in 2025, as there is uncertainty about the tariff levels that each economy will face amid ongoing negotiations with the US.

“We expect trade tensions and disruptions to remain. We have lowered our 2025 GDP growth forecasts for 20 of the 25 rated Asia Pacific economies, reflecting the breadth of the shock from trade disruptions,” It added.

Also, it said that the upcoming euro bond maturities in Sri Lanka are expected to remain below 0.5% of GDP in 2026 and 2027.

In Pakistan and Sri Lanka, similar trade risks and climate challenges weigh against reform commitments under respective IMF programmes.